I want to start investing in stocks, but I don’t understand the difference between individual stocks, investment trusts, and ETFs.
When people start studying investment, many get stuck here at first.
As you research further, new terms like index investing, high-dividend stocks, REITs, IPOs, and fractional shares keep appearing one after another.
However, you don’t need to memorize everything from the start.
The first things you want to grasp are:
what you are investing in
,
who chooses the investment targets, and how you buy and sell
—these three points.
In this article, we will organize the methods of stock investment for beginners, focusing on the differences between individual stocks, investment trusts, and ETFs.
*This article explains the general mechanisms of investment products and does not recommend the purchase of any specific financial product. Investments carry the risk of loss of principal.
Conclusion first | Differences between individual stocks, investment trusts, and ETFs
First, I will explain the differences between the three as simply as possible.
Individual stocks are a method where you choose a company yourself and purchase its shares directly.
Investment trusts are financial products where money collected from many investors is pooled, and an asset management company invests it in multiple stocks, bonds, etc.
ETFs are a type of investment trust, but because they are listed on a stock exchange, they can be bought and sold on the market just like individual stocks.
In other words, it is easy to understand if you have the image of:
-
Wanting to choose companies yourself → Individual stocks
-
Wanting to leave the management to professionals after choosing the product → Investment trusts
-
Wanting to trade like stocks while diversifying investments → ETFs
The important thing is not to decide which one is the best.
The important thing is not to decide which one is the best.
The most suitable method depends on the time you can dedicate to investing, your investment goals, and your attitude toward risk.
What are individual stocks?
Individual stocks are an investment method where you directly purchase shares of specific companies, such as Toyota Motor, Nintendo, or Sony Group.
If a company’s performance improves or its market valuation increases, the stock price may rise.
Depending on the company, you may receive dividends, and some Japanese companies also offer shareholder benefits.
Advantages of individual stocks
A major appeal is being able to choose your own investments.
“I think this company will grow in the future.”
“I want to support this company’s products and services.”
“I want to invest in a company that pays stable dividends.”
You can reflect your own ideas like these in your investments.
If the company you choose grows significantly, there is a possibility of earning returns that exceed the market average.
For those who enjoy company analysis itself, individual stock investing is a very profound method.
Points to note for individual stocks
On the other hand, the fewer companies you invest in, the more you are affected by a single company.
For example, if you were invested in only one company and its stock price dropped significantly due to poor performance or a scandal, the impact on your total assets would be substantial.
Therefore, with individual stocks, it is important to analyze:
-
sales and profits
-
financial condition
-
industry environment
-
Competitiveness
-
Stock price level
-
Dividend policy
and other factors must be checked by yourself.
It is not just a matter of buying stocks and being done with it; it also takes time and effort to continuously monitor the companies.
What is an investment trust?
An investment trust is a financial product where funds collected from investors are pooled together, and investment professionals invest them in stocks, bonds, and other assets.
For example, if you hold one investment trust that invests in stocks around the world, there are products that allow you to indirectly invest in hundreds or thousands of companies.
A major feature is that you do not need to select stocks one by one yourself.
Advantages of investment trusts
A significant benefit for beginners is that it is easy to diversify investments even with small amounts.
If you try to invest in 100 companies through individual stocks, you may need a large amount of capital.
However, with an investment trust, you may be able to diversify across many companies just by purchasing one product.
Also, depending on the financial institution, you can set up a savings plan starting from a small amount, so
it is easy to create a system of
“investing a fixed amount automatically every month.”
This method is also well-suited for busy office workers and others who do not want to spend much time checking stock prices daily.
Points to note about investment trusts
Investment trusts are not managed for free.
A typical cost is the “trust fee”.
Since trust fees are continuously deducted from the investment trust’s assets during the holding period, this is a point you should check for long-term investments.
Also, even among the same “investment trusts,” the contents differ significantly.
There are products focused on Japanese stocks, as well as products that invest in US stocks, global stocks, bonds, real estate, and more.
Therefore, rather than thinking “it’s an investment trust, so it’s safe,” it is important to look at what the contents are investing in.
What is an ETF?
ETF stands for “Exchange Traded Fund,” and in Japanese, it is called a “listed investment trust.”
As the name suggests, it is an investment trust listed on a stock exchange.
According to the Japan Exchange Group, ETFs can be bought and sold through securities companies just like regular stocks, and you can use limit orders, market orders, and so on.
In other words, it is easy to understand ETFs if you think of them as
products that combine “diversified investment of investment trusts” with “stock trading methods”
.
Advantages of ETFs
A typical advantage of ETFs is that it is easy to diversify investments with a single product.
For example, with an ETF linked to TOPIX, you can invest broadly in the Japanese stock market.
There are also ETFs that target US stocks, global stocks, bonds, REITs, and more.
Also, as long as the stock exchange is open, you can buy and sell while checking the market price.
You can also use limit orders, such as “I want to buy if it is at this price or lower.”
Points to note about ETFs
ETFs have a market price and a net asset value, which is the value as an investment trust.
Because they are traded on the market, the price moves based on supply and demand, and there may be a difference between the net asset value and the market price.
Also, the trading volume varies depending on the product.
When choosing an ETF, you should check things like:
-
what the ETF tracks
-
costs such as trust fees
-
total net assets
-
trading activity
-
distribution policy
.
What are the differences when comparing individual stocks, investment trusts, and ETFs?
From here on, we will compare them by focusing on points that are easy for beginners to judge.
Individual stocks if you want to choose the companies yourself
With individual stocks, you decide for yourself which company to invest in.
On the other hand, with investment trusts and ETFs, you decide which product to choose, but you can invest in many companies at once through that product.
Individual stocks are suitable for those who want to research companies, while investment trusts and ETFs are suitable for those who do not want to spend much time choosing companies.
Investment trusts and ETFs are easier to diversify
Diversified investment is the concept of spreading funds across multiple assets rather than concentrating them in a single company or asset.
For example, if you invest 1 million yen in only one company, your entire portfolio will be significantly affected if that company’s stock price drops sharply.
If you diversify across many companies, you can minimize the impact of price movements of any single company.
A feature of investment trusts and ETFs is that this diversification can be easily achieved with a single product.
Trading methods for individual stocks and ETFs are similar
Individual stocks and ETFs are traded on stock exchanges.
Prices fluctuate while the market is open, and you can also use limit orders, such as ‘I want to buy at X yen’.
General investment trusts are not structured to be bought and sold while watching prices in real-time like stocks.
If you want to trade while watching short-term price movements, individual stocks or ETFs are more suitable in terms of their structure.
Conversely,
‘I want to set up automatic monthly contributions and not look at the price frequently’
for people like this, investment trusts are likely easier to use.
Check costs for each product
You cannot simply group them by saying ‘ETFs are cheap’ or ‘investment trusts are expensive’.
This is because trust fees and other costs vary depending on the product.
In recent years, there have also been many low-cost index-type investment trusts.
Therefore, rather than judging solely by whether it is an ETF or an investment trust, it is important to compare the actual costs of each product.
Other stock investment methods
While stock investment centers on individual stocks, investment trusts, and ETFs, these are not the only ways to classify investment methods.
Here are a few that beginners should know about.
Fractional shares | Buying individual stocks with small amounts
Since many Japanese stocks are typically traded in units of 100 shares, it can cost hundreds of thousands of yen to purchase them depending on the stock price.
This is where fractional shares are used.
Although the names and service details vary by brokerage firm, there are services that allow you to invest in Japanese stocks in amounts less than 100 shares, such as 1 share.
‘It is scary to invest a large amount of money into individual stocks all at once’
This is one way for people who say that to gain experience with individual stocks.
However, trading hours, order methods, and fees vary depending on the securities company.
REIT | Investing in real estate
A REIT is a real estate investment trust.
Those listed on Japanese stock exchanges are called J-REITs. The Association for Real Estate Securitization also defines J-REITs as real estate investment trusts listed on domestic stock exchanges.
Using funds collected from investors, they invest in real estate such as
-
office buildings
-
commercial facilities
-
logistics facilities
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hotels
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residential properties
.
A feature of this is that you can participate in real estate investment with less capital than purchasing physical condominiums or apartments directly.
However, the factors behind price movements differ from those of stocks, and they are also affected by interest rates and real estate market conditions.
IPO | Investing in newly listed companies
IPO stands for “Initial Public Offering”.
When a company that has not been listed before goes public on the stock market, it sells its shares to investors.
While IPO stocks tend to attract attention, it does not mean that anyone can purchase the quantity they desire.
For popular IPOs, there are many applicants, and the people who can purchase them are sometimes determined by a lottery held by the securities company.
It is not guaranteed that an IPO will yield a profit, and there is a possibility that the stock price will fall below the offering price after listing.
High-dividend stock investment | Focusing on dividend income
Some companies return a portion of their profits to shareholders as dividends.
High-dividend stock investment involves selecting stocks with a focus on those dividends.
The appeal lies in enjoying regular dividend income, but it is not as simple as just buying companies with high dividend yields.
In some cases, the apparent dividend yield is high as a result of a significant drop in the stock price.
Also, if corporate performance deteriorates, there is a possibility of dividend cuts or the elimination of dividends.
It is important to look not only at the dividend yield, but also at
-
business performance
-
cash flow
-
financial condition
-
dividend history
-
dividend policy
, and so on.
Shareholder benefit investment | Enjoying company products and services
Some Japanese companies provide their own products, gift certificates, service discounts, etc., to shareholders.
This is known as shareholder benefits.
If it is a company you use regularly, there is also a method of holding the stock long-term while enjoying the shareholder benefits.
However, shareholder benefits can be changed or abolished at the company’s discretion.
Do not invest based solely on the benefits; be sure to check the value and performance of the company itself as well.
Index investment and active investment
When researching investment trusts and ETFs, another important classification emerges.
That is “index” versus “active”.
Index investing is a method that aims to track a specific index, such as TOPIX or the S&P 500.
It is characterized by the ease of investing broadly across the entire market, and many products have low management costs.
On the other hand, in active management, investment managers and others select stocks, aiming for investment results that outperform the market average.
In other words,
ETF does not mean index investing
.
There are active management-type ETFs, and general investment trusts also come in both index and active types.
This is a point that beginners often confuse.
So, which one should you choose?
It is recommended to think about investment methods not in terms of “which is the best,” but in terms of compatibility with yourself.
For those who do not want to spend much time and effort
A likely candidate is a broadly diversified index-type investment trust.
By using a recurring investment setting, you can create a system that automatically purchases every month.
This is a relatively easy method to adopt even for those who are busy with work or family and cannot find the time to check corporate news or stock prices every day.
For those who want to analyze companies themselves
Individual stocks are a candidate.
Read financial statements and
“Is the revenue growing?”
For those who enjoy thinking about things like
“What kind of competitive advantage does it have?”
or “Is the current stock price overvalued?”
However, concentrated investment in a single company also carries higher risks.
For those who want to trade on their own while diversifying
ETFs are a candidate.
You can invest in many stocks at once while trading them on the market just like individual stocks.
It is an easy-to-understand product for those who want to use it in a way that is intermediate between investment trusts and individual stocks.
For those who want to enjoy dividends
High-dividend stocks and high-dividend stock ETFs are candidates.
An ETF that diversifies into multiple high-dividend stocks can mitigate the risk of holding only individual companies.
However, it is important to consider the total return, including price appreciation and depreciation, not just the dividends.
For those who want to experience individual stocks with a small amount of money
Fractional shares are an option.
Instead of investing a large amount of capital from the start, you can use them to learn corporate analysis while experiencing stock price movements and dividends with small amounts.
What can you buy with NISA?
If you are a beginner in investing, you should also know about its relationship with NISA.
As of 2026, NISA includes
There are two types.
According to the Financial Services Agency, the annual investment limit is 1.2 million yen for the installment investment quota and 2.4 million yen for the growth investment quota, for a combined annual maximum of 3.6 million yen.
The tax-exempt holding limit is 18 million yen in total, of which the growth investment quota is limited to 12 million yen.
The installment investment quota covers certain investment trusts and ETFs suitable for long-term, installment, and diversified investment. The eligible products are published by the Financial Services Agency.
On the other hand, the growth investment quota allows for investment in listed stocks, ETFs, and investment trusts that meet certain conditions.
Therefore,
“NISA does not mean only investment trusts.”
It is not limited to that.
You can also utilize individual stocks and ETFs.
However, since not all products are eligible for NISA, be sure to check before purchasing.
Points to note when beginners choose an investment method
Finally, there is something more important than choosing a product.
Do not invest money needed for living expenses
Stocks, investment trusts, and ETFs can decrease in value.
Therefore, you should be cautious about investing money that will be needed in the near future, such as living expenses, funds for buying a home, or tuition fees.
The basic rule is to first secure the money necessary for your daily life, and then consider investing funds that you do not plan to use for the time being.
Do not choose just because it has been going up recently
There is no guarantee that a product that has risen significantly in the past will continue to rise in the future.
The same applies to stocks that are trending on social media.
If you can explain to yourself why you are investing before you make a purchase, it will be easier to make calm decisions even if the price drops.
Look at risks, not just returns
Investments that promise high returns come with corresponding price volatility risks.
Don’t just think about “how much it could grow,” but also
consider “how much of a potential decline you can accept.”
Frequently Asked Questions
Should beginners start with individual stocks or investment trusts?
If you want to prioritize diversification without spending time on stock analysis, investment trusts that invest in a wide range of stocks are a good candidate.
On the other hand, if you want to learn corporate analysis, you could also try individual stocks with a portion of your spare capital.
You don’t have to choose just one or the other.
Which is better for beginners, ETFs or investment trusts?
If you value the ease of automated investing, general investment trusts are suitable; if you want to buy and sell yourself while checking prices, ETFs are better.
However, it actually depends on the product details, fees, and investment targets.
Don’t decide based solely on “ETF vs. investment trust”; check the contents as well.
Does buying one ETF provide diversification?
It depends on the ETF.
Some ETFs target thousands of stocks worldwide, while others concentrate on specific industries or a limited number of companies.
It is important not to assume diversification just because it is called an ETF, but to check “what the ETF invests in.”
Is it okay to hold both individual stocks and investment trusts?
There is no problem with that.
For example, you could consider a combination where you make diversified investment trusts the core of your asset formation, while investing a portion in individual stocks of companies you like.
What is important is not the number of products, but the level of risk you are taking with your assets as a whole.
3 books to read along with this article
“Fully Revised 3rd Edition: The Lazy Investment Technique” by Hajime Yamazaki and Kenichi Minase
This is a book that organizes information about index investing in a way that is easy for beginners to understand.
“It seems difficult to keep choosing individual stocks on my own. But I want to start investing.”
This is especially helpful for people who feel this way.
It is recommended for those who want to understand why it is important to diversify broadly at a low cost.
You can also confirm this as the 3rd edition published in 2022 through official information from Asahi Shimbun Publications.
“A Random Walk Down Wall Street” by Burton Malkiel
This is a globally recognized book for learning about index investing.
You can learn deeply about why it is difficult to consistently outperform the market average with individual stocks, and what kind of thinking is involved in long-term diversified investment.
It is a bit voluminous, but
“Why do so many people choose index investing?”
It is suitable for those who want to understand the logic behind this.
“Winning the Loser’s Game” by Charles Ellis
This is a classic book recommended for those who want to learn the basic philosophy of long-term investment and asset management.
It makes you think about the importance of participating in the market over the long term while keeping costs and failures down, rather than repeatedly buying and selling in an attempt to consistently beat the market.
If you read it after understanding the mechanisms of ETFs and index investing, you will acquire not only the perspective of product selection but also the perspective of “how to continue investing.”
Summary
You don’t need to overthink the differences between individual stocks, investment trusts, and ETFs.
First, there are three points you should keep in mind.
-
Individual stocks: Investing directly by choosing companies yourself
-
Investment trusts: Pooling money from many investors to invest in multiple assets, etc.
-
ETFs: Investment trusts that can be bought and sold like stocks on a stock exchange
Also, you don’t have to choose just one investment method.
For example,
“Investment trusts as the core of asset formation”
“A portion in ETFs”
“Small amounts in individual stocks as a hobby”
These are all possible combinations.
What is important is not finding popular products, but deciding why you are investing and what level of price decline you can accept.
Once you understand the differences in investment methods, understanding “what is index investing” and “how to use NISA” will make choosing specific products much easier.
References/Sources
Financial Services Agency “Learning about NISA”
Financial Services Agency NISA Special Website
Financial Services Agency “Products eligible for the installment investment quota”
List of products eligible for the installment investment quota
Japan Exchange Group “Trading System (ETF)”
Japan Exchange Group ETF Trading System
The Association for Real Estate Securitization “J-REIT”
The Association for Real Estate Securitization J-REIT Explanation